Session 1

Changes in Marketing OLD MARKETING OLD MARKETING –Transaction oriented –Market share oriented –All customers are equal –Marketers sell –4P marketing –Mass marketing –Sell to the customer –Focus on new customers –Offensive –Broadcast oriented –Transaction profit NEW MARKETING NEW MARKETING –Relationship oriented –Share of wallet oriented –All customers are not equal –Marketers manage demand –Relationship marketing –Individual marketing –Manage customer experience –Focus on existing customers –Defensive –Dialogue oriented –Customer lifetime value

Offensive vs. Defensive Marketing OM refers to increasing your customer base. OM refers to increasing your customer base. DM refers to activities aimed at existing customers. DM refers to activities aimed at existing customers. –Defensive marketing has become more profitable. “Mass and Blast” is being replaced by 1:1.

Customer ? Human being Human being Person-who has acquired or thinking of acquiring our product or service Person-who has acquired or thinking of acquiring our product or service CRM Case of a Bank Manager.doc

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Organizational Charts

The Customer Development Process Prospects Suspects Disqualified First-time customers Repeat customers ClientsMembers Partners Ex-customers Dissatisfied

What is Perceived Customer Value? Product value Services value Personnel value Image value Total customer benefit Total customer benefit Monetary cost Time cost Energy cost Psychic cost Total customer cost Total customer cost Customer delivered value Customer delivered value

Customer Satisfaction The extent to which a product or service’s perceived performance matches a buyer’s expectations. What are expectations based on? – –Past buying experiences – –Friends, family and other associates – –Information about the competition – –Promises made in marketing materials (your brand) Word of Caution  If you promise too little…people won’t try your product!  If you promise too much…customers will be dissatisfied

Measuring Satisfaction Complaint System / Telephone Hot Line / Complaint System / Telephone Hot Line / Customer Surveys Customer Surveys –25% of customers not satisfied –5% will complain –95% just switch or buy less Lost Customer Analysis Lost Customer Analysis –Follow up with customers who have stopped buying –Monitor lost customer rate Go for TCS Go for TCS

Techniques for Exceeding Customers’ Expectations Live up to their expectations. Live up to their expectations. Become familiar with your customers. Become familiar with your customers. Ask your customers what their expectations are. Ask your customers what their expectations are. Tell your customers what they can expect. Tell your customers what they can expect. Maintain consistency. Maintain consistency. Ask “ Why are they using your product” Ask “ Why are they using your product”

Delivering customer value & satisfaction Not just the people in charge of marketing are in charge of marketing. Must have an effective value chain focused on serving the customer. Employees need to be trained and understand what expectations are for customer service – and Need to be empowered to address certain situations.

Profit Generated by a Customer Over Time Source: An exhibit from F. F. Reichheld and W. E. Sasser, Jr., “Zero Defection: Quality Comes to Services,’’ Harvard Business Review, September–October 1990.

Customer Satisfaction Highly satisfied customers are: – –Less price sensitive – –More likely to talk favorably about you – –More likely to refer you to others – –Remain loyal for longer

Superior Customer Satisfaction Affects Bottom Line Increased Sales Increased Usage Greater Pricing Leverage Competitive Advantage Increased Customer Loyalty Increased Market Share Increased Financial Performance Superior Operating Results Superior Customer Satisfaction Superior Customer Satisfaction

Churn (or Churn Rate) The number of customers who leave a business in a year’s time divided by the number of new customers in the same period. The number of customers who leave a business in a year’s time divided by the number of new customers in the same period. e.g 17 Doctors stopped Rxing Becosules & 34 new Doctors started Rxing it in 2008 e.g 17 Doctors stopped Rxing Becosules & 34 new Doctors started Rxing it in 2008 Churn Rate = 17/34 = 0.5 Churn Rate = 17/34 = 0.5 Lower Churn Rate indicates Customer Satisfaction ? Different time period for different products( B2B,B2C)

Defection Rate The percentage of customers who leave a business in one year. The percentage of customers who leave a business in one year. If 17 out of 255 Doctors have stopped Rxing Becosules so If 17 out of 255 Doctors have stopped Rxing Becosules so Defection Rate = 17/255*100 = 6.67 % Defection Rate = 17/255*100 = 6.67 % Higher Defection Rate indicates Customer Dissatisfaction ?

Annual Defection Rates –Newspaper subscriptions66 percent –Residential tree and lawn care 32 percent –U.S. long distance telephone30 percent –Clothing catalogues25 percent –Internet service providers22 percent Griffen and Lowenstein 2001

Outcomes of Commitment & Trust  Retention  Positive Word of Mouth  Cooperation  Ease of Complaining  Reduced Uncertainty  Increased Share of Wallet  Faster New Product Adoption

How do we generate Commitment & Trust? Economic Content Economic Content Resource Content Resource Content Social Content Social Content

Understanding How Customer Relationships Develop Relationship Attitudes Relationships’ Economic Content Relationships’ Social Content Relationships’ Resource Content Attitudinal Outcomes Behavioral Outcomes

Building Relationships Relationship Attitudes Relationships’ Economic Content Relationships’ Social Content Relationships’ Resource Content Attitudinal Outcomes Behavioral Outcomes First, let’s look at the fundamental drivers of relationships, the economic, resource, and social contents.

Economic Content The purely economic costs and benefits of participating in the relationships The purely economic costs and benefits of participating in the relationships Examples: Examples: –Service fees –Interest rates –Costs saved due to superior management of customer’s wealth

Resource Content Benefits gained that match/complement the needs or resources held by the partner. Benefits gained that match/complement the needs or resources held by the partner. Examples: Examples: –Professional competence –Comprehensive financial services –Business development assistance –Convenience (time as a resource) –Tangibles –Brand equity

Social Content Psychic benefits gained due to feelings of compatibility -- similar values, goals, etc. -- that result in a feeling of comfort. Psychic benefits gained due to feelings of compatibility -- similar values, goals, etc. -- that result in a feeling of comfort. Examples: Examples: –Relationships with employees –Fit of firm’s mission and actions with customers’ values –High quality communication programs

Building Relationships Relationship Attitudes Relationships’ Economic Content Relationships’ Social Content Relationships’ Resource Content Attitudinal Outcomes Behavioral Outcomes Next, let’s look at the ultimate outcomes of relationships, which impact firm’s business performance.

Attitudinal Outcomes Customer beliefs that result from relationship dynamics, these attitudes can go on to impact behaviors and the development of even stronger attitudes. Customer beliefs that result from relationship dynamics, these attitudes can go on to impact behaviors and the development of even stronger attitudes. Examples: Examples: Reduced uncertainty Brand equity Cooperation Cooperation

Behavioral Outcomes Partner behaviors and intended behaviors that directly or indirectly impact the firm’s performance. Partner behaviors and intended behaviors that directly or indirectly impact the firm’s performance. Examples: Examples: –Retention –Positive word of mouth –Complaining –Faster New Product Adoption – Increased Share of Wallet 

Consumer Buying Behavior Video: Marketing Psychology & Consumer Buying Behavior

Exercise Exercise Think of a service provider/product to whom you are loyal. Think of a service provider/product to whom you are loyal. What do you do (your behaviors, actions, feelings) that indicates you are loyal? What do you do (your behaviors, actions, feelings) that indicates you are loyal? Why are you loyal to this provider? Why are you loyal to this provider? What factors have influenced the formation of your loyalty? What factors have influenced the formation of your loyalty?

Loyalty Loyality is an emotion Helps in maintaining a close relationship A series of positive experiences Leads to commitment & trust Leads to Customer Alchemy

A Loyal Customer is one who… Show Behavioral Commitment Show Behavioral Commitment –Buys from one supplier (sole loyalty) –Buys a large proportion, increasingly buys more –Provides constructive feedback/suggestions Exhibits Psychological Commitment Exhibits Psychological Commitment –Commitment-doesn’t consider terminating the relationship –Has a positive attitude toward –Say good things about

33 The Wheel of Loyalty

34 Deliver quality service Segment the market to match customer needs and firm capabilities Be selective; only acquire customers who fit the core value proposition Manage the customer base via effective tiering of service 1. Build a Foundation for Loyalty

35 Deepen the relationship  Cross-selling/Bundling Build higher level bonds  Social  Customization  Structural bonds 2. Create Loyalty Bonds

Social Bonds Personal Relationships Personal Relationships Memberships/ Formal & Informal Memberships/ Formal & Informal Affinity Programs Affinity Programs

Customization Mass Customization – Dell computer Mass Customization – Dell computer Customer Intimacy- Infosys, Accenture Customer Intimacy- Infosys, Accenture Anticipation/ innovation – Apple Anticipation/ innovation – Apple Nectar – Stretch Discounts Nectar – Stretch Discounts

Structural Bonds Integrated information systems Joint investments Shared processes and equipment

 Adding financial benefits (e.g., frequent flyer programs)  Add social benefits (e.g., recognizing repeats guests and greats them by name)  Add structural ties (e.g. reservation systems for travel agents, special phone lines, flexible check-in, check-out time for best customers, send limousine)  Add Customization ( e.g food, movies of choice, special packages) Example

40 Conduct churn diagnostic and monitor declining/ churning customers Address key churn drivers:  Proactive retention measures  Reactive retention measures Put effective complaint handling and service recovery processes in place Increase switching costs 3. Reduce Churn Drivers

Dating your Customer Dating your Customer